Businesses reap seven major benefits when they introduce Accounts Payable Automation. Instead of treating it as a basic accounting function, they convert it into an integrated and streamlined process that delivers specific results. This simple conversion empowers their AP invoice processing team, and the business immediately sees:
- Reduced invoice handling and time-wasting
- Reduced costs
- Improved accuracy and accountability
- Maximized system transparency
- Improved cash flow visibility
- Enhanced spend management procedures
- An AP team focusing on data analysis and report preparation
Reduce, improve, maximize, enhance, and focus are powerful words that should get the C-suite’s attention.
Why You Should Explore AP Automation?
When you do a deep dive into AP automation, you achieve several outcomes. For example, when senior managers understand the details within each part of the process, they get a clear insight into how much time and effort goes into the entire function. That insight enables them to focus on where those overhead expenses are unnecessarily costly and where they can be minimized.
When order and invoice validation improves and is simplified and clarified, the AP team benefits. The C-suite decision-makers get the data they need more quickly, and vendor relationships improve. The net result is that the AP automation becomes a measurable contributor to corporate profit.
The invoice team transforms from processors, checkers, and correctors to business contributors. This change also brings operational managers into the cost-saving arena. For example, managers who run separate sites, departments, studios, stores, or restaurants and who handle their own procurement will see their own operating costs go down along with their portion of head office overheads. Another benefit of improving this step in accounts payable processes is that early payment discounts should go up and become more frequent. To reinforce that point, we will explore the step-by-step AP invoice process. Then we’ll look at how it can be brought up to date, improved, and made into a strategic part of business success.
The Traditional AP Invoice Process
Procurers decide, in isolation, what they should order from which vendor. These decisions are often based on habit, the need for speedy delivery, and price. By looking at each of these 18 steps in detail, you realize how inefficient traditional AP invoice processing is and why it should be reinvented.
- Where needed, companies consider and choose new vendors.
- Purchase orders (POs) are placed with vendors, and the order is filed on-site or passed to AP accounts for three-way matching.
- Vendors acknowledge the PO, confirm the delivery schedule, or address any problems with availability.
- The supply chain is activated when the vendor begins the delivery of ordered items.
- The company receives ordered goods.
- They check received delivery notes (DNs) against the PO.
- The team addresses discrepancies between the PO and DN.
- The company receives purchase invoices (PIs). PIs may go to the purchase originator and then, after approval, to the AP team, or they may go directly to the accounts payable department.
- Different vendors submit invoices in different ways, leading to extra effort by AP invoice staff. Vendor invoices may be delivered by snail mail, email, or other online delivery methods. The AP invoice team must cope with any and all delivery methods, as well as delayed and mis-delivered paperwork. On its own, this reduces efficient workflow and basic AP department functionality.
- PIs are checked for the date, contact details in case of queries, purchaser ID, and purchase details, which include the items being charged for, quantity, and unit price. Purchaser ID is essential for multi-site businesses so that costs can be correctly allocated.
- The three-way matching process (PO with DN with PI) is typical in AP invoice processing. It is essential to avoid line item errors, being overcharged, or becoming the victim of intended or accidental fraud.
- If the PI has not already been approved by the purchaser and forwarded to AP accounts, it is passed to the purchaser for approval and returned to AP. But if paper invoices are received, they may be batched and passed to the relevant site. Electronically sharing documents gets easier but still demands accuracy and timeliness.
- The invoice is entered into the daybook, ready for posting to the vendor’s purchase ledger account.
- Each invoice line’s data, or just the invoice total, is coded for future analysis and management accounting reports.
- AP teams must note, record, and copy all changes to contact details, delivery addresses, etc., for interested parties.
Find the Inefficiencies in Those Steps
Manual handling increases the chance of error. Humans make mistakes. Paperwork is mislaid, misfiled, sent to the wrong purchaser for approval, not returned or forwarded, etc. All these waste time. They eat into team member activities, reducing their efficiency and limiting how much time they can spend on more valuable tasks. Those other tasks may either not be completed on time or to standard.
Also, people cut corners when they feel under pressure. If invoices are miscoded or misposted, the error must be discovered and corrected. If people don’t discover it, then it and all other ignored errors feed through to the operating accounts, P and L account, general ledger, and balance sheet.
The Final Three Steps
- Each invoice is added to a payment schedule.
- Payments are finally posted to the purchase ledger account.
- The entire process repeats and repeats.
It is worth senior management’s time to look closely at how their company processes invoices. Manual processing or partial invoice automation still makes it a detailed and complex process fraught with the frequent potential for error and possible fraud. Any improvement in efficiency will cut costs and reduce pressure on the AP team. That will enable them to prepare appropriate metrics for management review.
Considering the actual costs to the business, it is worth looking at more than the general overhead of the AP department and its workflow procedures. Also, consider the actual costs of each step. By simplifying or completely removing many of these traditional steps, the savings will be clear and will add up. AP automation is an obvious solution which we will discuss later.
When simple savings are added to accounts payable automation while focusing on how AP invoice team members can really contribute to business success, the future looks very bright. The team will become a more valuable corporate asset. The impact on future spend management and the ability to reallocate financial assets from simple operational activity to growth actions will be seen as essential. To help you do the math, here are some statistics.
The Cost of Manual Invoice Processing
The AP Association published a 2019 American AP process survey showing that the average cost to manually process each AP invoice hovers between approximately $4.50 and $11.00. It also said that 39% of businesses surveyed by the Institute of Finance and Management (IOFM) spend more than $6 to process a single invoice. The average cost is $12.90.
It costs 2.2 times more to process an invoice that comes without a purchase order attached. This puts the average cost to process a non-PO invoice at between $18.00 and $25.00. Once individual errors are found, checking, correcting, approving, and coding can add up to more than $19.00 per invoice. It is a sobering thought to learn that approximately 3.6% of manually processed invoices include at least one error.
At this point, it may be worth surveying your AP invoice processing. How many invoices does your team process each month? How many require correction, and how many omit a purchase order? Also consider that when AP team members focus on receiving, checking, correcting, and authorizing invoices, they can’t contribute to corporate success; they are simply minimizing problems.
39% of businesses surveyed by the Institute of Finance and Management (IOFM) spend more than $6 to process a single invoice. The average cost is $12.90.
The Better Alternative to Traditional AP Invoice Processing
The IOFM says survey respondents with automated AP invoice processing reduced the costs of processing invoices by 27%. AP invoices do not need checks or corrections when companies use a reliable approval process with effective automation software. In addition, the Aberdeen Group (quoted in the same report) said that organizations that automate and also implement other improvements reduced single-invoice processing costs from an average of $12.90 to $3.34.
The Benefits of Effective AP Automation
The benefits of implementing automated, centralized, and properly controlled AP invoice processing add up to real cost savings. Streamlined processing from PO origination to invoice approval and payment scheduling increases those benefits. Purchase initiators and approvers have a single platform to work from. Users can add to the purchaser catalog at any time, making the value of a particular vendor available to all sites and departments. Procurers know vendor validation is complete and the approval process is in force, so placing orders will not interfere with delivery workflow or need to be verified in other ways by the AP department.
The resulting improved accuracy reduces time and cost spent checking, identifying, and correcting errors. Having a centralized system means teams have a single source for placing orders and approving purchases. Single-sourcing, automation, and streamlined processing mean that full cash flow visibility becomes the norm. IOFM reported visibility as being 400% better because spending data easily consolidates. Also, all data input to the purchase process becomes immediately available for analysis and decision-making.
Spend management control grows stronger because centralized, standard, and approved actions using a single platform deliver clear and up-to-date data. The AP invoice processing team can, therefore, spend more time analyzing data and producing valuable reports in a timely way.
The Bottom Line for a Supercharged AP Team
Accurate and streamlined AP invoice processing delivered through AP automation becomes an essential and integral part of the business. By integrating it into a centralized, up-to-date system, it generates real value for team members, remote sites, and the C-suite. The major benefits you can expect to see are that:
- Time spent on basic processing goes down. Also, cost savings will be clear, calculable, and proven.
- The entire process, from approving a vendor and posting an approved invoice to scheduling and making payments, will be automatic, clear, accurate, streamlined, and logical.
- Your spend visibility will be clear because the data will become automatically available. Team members who previously “just processed invoices” can analyze the data.
- The AP invoice processing team becomes analyzers and report creators who contribute to business success by generating any data the C-suite demand.
Negotiatus delivers more than these benefits for clients. Because clients can consolidate billing, they will receive only one invoice at the end of each month. That single invoice will consolidate every vendor and every one of the invoices those vendors would previously have sent for processing. The simplicity and accuracy of the Negotiatus service will deliver payback quickly and consistently. To learn more, please contact one of our dedicated professionals to discuss your ideas, needs, and goals. You can also arrange a free demo.